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Big asset owners and managers are embracing the private markets as one avenue for growth, but the complexity that brings to portfolios means they also need to get a better view of what might be decades of siloed information.
External management’s future in an internalising world
(Pictured: Benjie Fraser)
Big super funds, most of which are insourcing an increasing amount of their investment management activities, are likely to always retain a significant element of external management, according to Benjie Fraser.
The London-based JP Morgan managing director and global pensions executive addressed an IMCA meeting in Australia earlier this month.
Fraser, who has studied and worked with some the world’s biggest pension funds for the past 20 years, says: “Data tells us that while Australia is feeling a bit of a drive on for [investments insourcing] at the moment, which is to some extent the natural outcome of ongoing consolidation among the funds themselves, the global story is that there is huge room for external managers as well as internal teams to be part of the solution when you look at the big names.
“For the majority of all other pension funds, by which I mean over 50 per cent of the global market-place by assets, external management, in its many forms, still remains the best option.”
Fraser is a frequent visitor to Australia and is in tune with the predominantly defined contribution market here, compared with the predominantly defined benefit market in Europe. IMCA is the Investment Management Consultants Association, an organisation which includes investment managers.
Fraser says that public DC funds have always been cost conscious and costs are an important factor contributing to the insourcing trend.
He says, though, that in Australia there needs to be more work done on the governance of funds. “This is an issue around the world,” he says. “It’s about ensuring that everyone’s being paid an appropriate amount for what they are delivering.” In that context, external managers still have a rosy future.
“The majority of pension fund assets will remain externally managed, however, for a relatively small group of the largest funds, internalization is becoming an area of interest,” he says.
“There are potentially significant benefits to internalization, however, there can be some challenges which need to be carefully considered: for example, attracting talent and changes to the organisation’s structure, infrastructure and operational risk appetite.”
Fraser says that there is huge government pressure on Australian super funds “but you have to wonder whether all of it is the right kind of pressure”.
